Linton v Bellaney
[2024] NZHC 490
•8 March 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2023-409-379
[2024] NZHC 490
BETWEEN ANDRE LUKE MCBRIDE LINTON
First Applicant
AND
ANDRE LUKE MCBRIDE LINTON and
MOLLY ANN LINTON as trustees of the Andrew and Molly Linton Family Trust Second Applicants
AND
NATURAL HEALTH CLINICS 1987 LIMITED
Third Applicant
AND
CLIFFORD FALCONER BELLANEY
First Respondent
AND
FLEX FX LIMITED
Second Respondent
AND
CLIFFORD FALCONER BELLANEY and KATHLEEN MARY FRANCIS GRAHAM
and JAW TRUSTEES LIMITED as trustees of the Skye Trust
Third Respondents
Hearing: On the papers Counsel:
G A Cooper and E L Pearce for the Applicants
C R Johnstone and J Watson for the Respondents
Judgment:
8 March 2024
JUDGMENT OF HARLAND J
AS TO COSTS ON INTERIM INJUNCTION APPLICATION
LINTON v BELLANEY [2024] NZHC 490 [8 March 2024]
Introduction
[1] On 18 December 2023, I dismissed the applicants’ application for an interim injunction which sought to prevent the respondents from continuing to manufacture, market and supply certain natural health products which they submitted breached their intellectual property rights, was contrary to a restraint of trade clause in an agreement for sale and purchase of the shares in the third plaintiff company and which breached the Fair Trading Act 1986.1
[2] I indicated that costs should follow the event and made a timetable for the filing of memoranda dealing with that issue. I outlined that, thereafter, costs would be dealt with on the papers.2
[3] The respondents have since filed a memorandum outlining the costs they seek, the applicants have responded and the respondents have replied. This judgment determines costs, taking into account the matters raised in the memoranda.
The application for costs and opposition to it
[4] The respondents initially sought costs amounting to $41,108 and disbursements of $270. All were calculated in accordance with category 2B, with a daily rate of $2,390. Having considered the applicants’ reply memorandum, the respondents now seek costs in the sum of $33,938 with disbursements of $220.
[5] The applicants’ primary position is to oppose costs because they submit r 14.7 of the High Court Rules 2016 (HCR) applies. Mr Cooper submitted that r 14.7 extends to situations where a successful party’s conduct may disentitle it to costs. He submits that is the case here. Counsel for the applicants acknowledged that costs generally follow interlocutory applications under rr 14.2 and 14.8, but submits, citing Marx v Attorney-General, that where special circumstances exist, it is fairer to depart from the general rule that costs should follow the event.3
[6] Mr Cooper submitted, citing in particular rr 14.7(f) and 14.7(g), that the following matters are relevant to the Court’s assessment under r 14.7:
1 Linton v Bellaney [2023] NZHC 3761.
2 At [102].
3 Marx v Attorney-General [1974] 2 NZLR 372.
(a) the respondents’ conduct prior to the application being brought, particularly their response to the cease and desist letter;
(b) the requirement in the judgment that undertakings be provided by the respondents; and
(c) the subsequent breach of those undertakings by continuing to bulk email market the products in issue and the likelihood, given their prior conduct, that the respondents will continue to do so before the substantive proceedings are resolved.
[7] As a secondary argument, the applicants challenge the quantum of the costs sought by the respondents. They submitted, if costs are awarded, they should amount to no more than $24,617, with the disbursements reduced to exclude a claim for a sealing fee.
[8] The respondents’ reply outlines their case that no special reasons exist under r 14.8 to deny costs or reserve them pending determination of the (new) application to revisit the Court’s interlocutory decision. As I have outlined, the respondents accept a reduction in the amount claimed but not to the extent sought by the applicants.
Legal principles
[9] The starting point for any costs matter is r 14.1 HCR which states “[a]ll matters are at the discretion of the court if they relate to costs”. Secondly, under r 14.2, costs will generally follow the event. Costs in interlocutory applications, under r 14.8, must be fixed in accordance with the HCR “unless there are special reasons to the contrary”.
[10] The thrust of this case is whether costs may be reduced under r 14.7, with the applicants essentially arguing that the conduct of the respondents constitute an exceptional circumstance that has disentitled them to their claimed costs. The applicants first rely on rr 14.7(f)(i) and 14.7(f)(iv), which state:
14.7 Refusal of, or reduction in, costs
Despite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if—
…
(f) the party claiming costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
(i)failing to comply with these rules or a direction of the court; or
…
(iv) failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules;
[11] Rules 14.7(f)(i) and 14.7(f)(iv) may be considered together.4 They will apply where the failure to comply with the rules or a direction of the Court unnecessarily contributes to an “actual and palpable increase in time and expense.5 The rule has been invoked where the persistent and unexplained failure of a successful party to comply with timetabling directions resulted in delays to resolution6 and when a failure to comply with timetabling resulted in the adjournment of scheduled proceedings.7
[12] I note with reference to the applicants’ reliance on r 14.7(g) the “catch-all” provision is broad but requires good reason for departure from the general rule that costs follow the event.8 The number of exempt categories is to be kept limited, lest the exception swallows the rule.9
Discussion
[13] I am not persuaded that this is a case where special circumstances justify a departure from the general rule that costs should follow the event.
Cease and desist letter
[14] First, I am not persuaded that failing to comply with the cease and desist letter was required given that the argument between the parties fundamentally concerns the nature of the products themselves. The applicants’ products, under the brand Koru FX, are described as topical creams or lotions which are applied to the skin to provide
4 David Bullock and Tim Mullins The Law of Costs in New Zealand (LexisNexis, Wellington, 2022) at 3.44.
5 Red Bull New Zealand Ltd v Drink Red Ltd [2016] NZHC 1473 at [11].
6 Hall v Roderick [2015] NZHC 1560.
7 Commissioner of Inland Revenue v Patel [2013] NZHC 477.
8 Taylor v District Court at North Shore (No 2) HC Auckland CIV-2009-404-2350, 13 October 2010, at [10]
9 Roberts v A Professional Conduct Committee of the Nursing Council New Zealand [2014] NZCA 141, (2014) 21 PRNZ 753 at [24].
what is referred to as “joint and muscle support” for human use. The Flex FX products are said to be soft balm products, typically applied to relieve, among other things, joint pain, designed to be applied via massage. Although originally for equine use, the Flex FX products are now marketed for human use. The applicants say the Flex FX products breach their rights as generally outlined in para [1] above.
[15] This fundamental difference, which is at the heart of this proceeding, would have been most unlikely to have been resolved as a result of the cease and desist letter, especially at an interlocutory stage. In the context of the claim as it is unfolding, I do not consider the respondents’ response to the application for an interim injunction to have been unreasonable. Of course, whether the respondents’ characterisation of their product amounts to a breach of the applicants’ rights will be a matter for the substantive hearing and, if decided in favour of the applicants, will mean that the applicants are likely to be entitled to costs against the respondents.
Undertaking required in judgment
[16] The second and more compelling argument for the applicants relates to the respondents’ agreement at the hearing before me to provide certain undertakings. However, the undertakings confirmed what the respondents said was already the case, namely that they would undertake no bulk marketing in relation to the products in issue until the substantive proceedings are finally resolved, and that they would not refer in their marketing material to Koru FX or Mr Bellaney’s prior role in it for the same reason.
[17] In this sense, the respondents acted responsibly to the aspects of the cease and desist letter they considered to be relevant but did not concede the fundamental difference between the parties, which is arguable.
[18] But, as against that, as my judgment reveals, the applicants did not provide a satisfactory undertaking as to damages. I outlined my reasoning in relation to this in para [95] of my judgment, which is also the context to the following paragraph dealing with the respondents’ offer to provide certain undertakings. These findings were relevant to my decision that the balance of convenience favoured the status quo, namely that both parties continue to be able to market their products subject to the requirement that the Flex FX marketing material was limited in the way I had outlined.
[19] Subsequently, as I recorded in my minute of 2 February 2024, a dispute has arisen about whether the first respondent has breached the undertakings he offered to provide at the interim injunction hearing on 11 December 2023 and which I had directed should be provided. In my minute I said “[t]his undertaking was an important reason why I was persuaded that the balance of convenience favoured the defendants”.
[20] Unfortunately, the characterisation in my minute was not consistent with my judgment, because my conclusion at [97] was that the balance of convenience favoured the status quo subject to the requirement that Flex FX’s marketing material was limited in the way that I had outlined at [96].
[21] But there were also other reasons why the application for interim injunction did not succeed, and I have referred to the applicants’ failure to provide a satisfactory undertaking as to damages.
[22] For these reasons, I am of the view that the requirement for the undertaking which had been offered is not disentitling as far as it relates to costs.
Alleged breach of undertakings
[23] Third, the applicants rely on what they refer to as a “subsequent breach of those undertakings”. This was why the matter was called before me on 2 February 2024. Following my minute, the applicants filed an interlocutory application requesting that the interim injunction and ancillary relief I made in December 2023 be revisited. On 14 February 2024, Preston J directed a timetable for the filing of evidence and submissions, with a date to be scheduled for the hearing.
[24] The short point is that there cannot, at this time, be a categorical determination that the respondents have breached their undertakings and I note that they deny doing so. Further, such matters are irrelevant to my decision on costs in relation to the first interlocutory application. Should the applicants be successful on their second application for injunctive relief, costs on that application could be dealt with discretely or, alternatively, the Court may act to vary this order for costs under r 14.8(2).
[25] It follows that I am not persuaded that this is a case where r 14.7 is engaged or that there are special reasons under r 14.8 justifying a departure from the usual position that costs should be fixed now.
[26] In my view, it is appropriate that costs be awarded in favour of the respondents following their successful opposition to the applicants’ application for an interim injunction against them. At this stage, no action of the respondents could be said to have unnecessarily contributed to an actual and palpable increase in time and expense and neither are any of the recognised r 14.7(g) exemptions engaged.
Quantum
[27] The question is whether the costs now sought by the respondents are justifiable or whether those submitted by the applicants are more appropriate.
[28]I address each of the issues raised:
(a) Items 10, 11 and 12 – I am satisfied the respondents’ claim is appropriate because the first judicial conference required urgent and detailed preparation of factual and legal issues, counsel’s memorandum and an appearance. I accept Mr Johnstone’s submission that there is no duplication in respect of the time allocations in schedule 3 across the separate items 10, 11 and 12;
(b) memoranda for callover and mention hearings: item 11 – I am satisfied that separate memoranda were filed on each of the five dates shown in column four of the applicants’ table and that they were justified;
(c) inspections of confidential documents: item 21 – 0.6 days across both inspections is claimed by the respondents. In the schedule, this item relates to inspection of documents which follows discovery. I cannot see why it should not apply to the inspection of the confidential documents which was required prior to this urgent hearing. The respondents have agreed to reduce their claim to 0.6 days which, in my view, is appropriate; and
(d) notices of opposition: item 23 – a second notice of opposition was filed on 20 November 2023. The respondents submit that it was appropriate and necessary given the applicants’ failure to identify in the intituling and correctly plead the trustees of the second applicants, despite having been given prior notice of the defect. The applicants submit that the notice of
opposition was not ordered and was not necessary and, further, the respondents were not successful in their application on the argument relating to the trustees. Because the respondents were not successful on this claim, I accept the applicants 0.6 days cost for this item.
Conclusion
[29] In conclusion, I am satisfied that the total calculated costs properly claimable are $32,724.10
Result
[30] I make an order that the applicants are to pay the respondents costs in the sum of $32,504 and disbursements of $220.
[31] Under r 14.14, the liability of each of two or more parties ordered to pay costs is joint and several, unless the Court directs otherwise. The Court has not received submissions on this issue and there is nothing to suggest divergence from the general rule is appropriate.
Harland J
Solicitors:
Cavell Leitch, Christchurch Young Hunter, Christchurch
Copy to Richard Johnstone, Barrister.
10 13.6 x 2390 = 32,504, +220 = 32,724.
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